Top O' the Morning Miners!
Gold got its mojo back this week. My input to the Weekly Kitco Gold Survey:
My vote is up. Target gold price $1,240 per ounce . Target Silver price $17.5 per ounce.
A sharp reversal in the U.S. dollar Wednesday following remarks by the Federal Reserve boosted gold and commodities*. A sense that the Fed will not accelerate tightening for the time being suggests the the high in early-January may indeed remain the "Trump dollar top."***
In terms of fear factors, a positive outcome in Dutch elections took some momentum from the nationalist movement in Europe but the French elections in France still loom large. There is also a witches' brew bubbling around U.S. policy ahead of this weekend's G20 meeting of finance ministers and central bankers in Baden-Baden, Germany. There are concerns about U.S. trade protectionism, possible currency manipulation charges and the fragility of multi-lateral trade agreements. Taken together, an indeterminant outcome for the meeting likely supports higher gold prices next week.
Increasing inflationary pressures in the U.S. and abroad, a surprise FN victory in France or miscalculation in dealing with hot spots such as North Korea could drive the yellow metal considerably higher in the coming months.
Gold is up 2.4% for the week at $1,229.9 per ounce in early morning trading. The yellow metal gained value compared to oil but lost some ground to copper on supply disruption worries for the latter. Gold in euros was very strong with a small loss in terms of Japanese yen [see discussion & charts below].
The fate of the Chinese yuan remains a key tell for gold and copper - a material drop in valuation could boost gold and depress copper prices. Aggressive liquidity tightening by the People's Bank of China (PBOC) has eased, stabilizing the yuan below 7 USD/CNY. However, defending their currency has brought China foreign reserves to a 6-year low. Premier Li Leqiang's lowering of the China GDP target to 6.5% and the Fed rate hike suggest a relaxation of this vigorous defense is likely. This morning, the yuan has weakned a bit but volatility is still low (1-month volatility** is 0.26%) trading at 6.9899 USD/CNY.
Have a Happy St. Paddy's
*one-month correlation of gold with oil & copper is high; +0.79 & +0.72 respectively.
** by comparison the euro & yen 1-month volatilites are roughly 0.6% & 0.8% respectively.
***Interesting column Sunday night in Bloomberg News:
Yellen Surprises Hedge Funds Who Cut Gold Bets Before Rally
Red Metal Rises
Euro bourses and base commodities are following the overnight trend higher off the early opening with the Black, Red and Shiny Ones [oil, copper & gold] all gaining strength from the currency factor while the Red One continues to feed on supply disruptions in Chile and Peru with continued reduced production in Indonesia affecting three of the world's biggest mines.
Comex copper scored an intraday high of $2.6975 per pound yesterday.
Gold Price Outlook 2017
Gold started the year nicely and should remain in my newly revised range of $1,180 to $1,320 per ounce*. Average gold price for 2017 should print above $1,200 per ounce.
An important gold ratio to watch is gold-to-S&P500 or AUSP. The ratio bottomed in early-December of 2015 and reversed to a bullish trend, peaking February 11, 2016. It bottomed again December 20, 2016 trended higher but has now bearishly reversed. Confirming a double-bottom in the coming months would be a significant positive for the lustrous metal; latest developments are less positive - we must stay above the December bottom! (see chart below).
Gold has gained ground on the embattled euro and yen. Post-election, gold in euro and yen terms are up and safely above 2013 lows (chart below) and are both above pre-election levels. It is somewhat worrisome that gold in euro terms broke below uptrend support March 9 - something to monitor carefully, although much of this loss has recovered this week.
Gold ratios relative to copper and oil are stabilizing near historically less extreme levels which is a healthy sign. Geo-political events and/or a bump in inflation expectations could restore glitter to gold in 2017.
Gold near my low-range of $1,180 per ounce-level is a tempting "buy."
(please do your own research, markets can turn on you faster than a feral cat!)
*My pre-election October range for gold price was $1,240 to $1,320 per ounce, Winter 2016 Edition of the Mining Quarterly Storms Never Last: Positive News for Gold, Oil & Copper
Here's a new chart to watch. Click on the image for a larger size:
Colonel Possum & Mariana